Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Newsletter Sign-up
Site Search
Site Map
Tell A Friend About This Website
Financial Briefs


Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

A Comprehensive Way To Plan For College Savings

Are you staring down the barrel of a college education that could cost $150,000 or more for each of your kids? Saving for college can be daunting, but it’s not impossible. The best approach is to assess your situation, crunch the numbers, and create a comprehensive savings plan. Of course, the sooner you can start saving, the better.
Let’s consider a hypothetical family using an innovative software program for financial planners called MoneyGuidePro. The calculations are based on information entered on December 1, 2010.
William Allbright is 55 years old and earns $150,000 a year. His wife, Jessica, is 50 and has an annual salary of $100,000. The couple’s only child, Sarah, will start college in September 2016, and with her education expenses looming, the Allbrights have established saving for college as their main financial goal. Sarah isn’t sure where she’ll go to school, but based on the colleges she’s considering, the Allbrights are aiming for a savings plan that could provide $40,000 a year for her education. But being able to pay $30,000 might be acceptable.
The Allbrights have established a tax-advantaged “Section 529” college savings plan for Sarah that is currently valued at $100,000. They plan to add $10,000 to the plan each year from 2010 through 2019 (Sarah’s last year of college). 
For simplicity, we’ll assume that the entire amount is invested conservatively in cash and cash-alternatives, projected by MoneyGuidePro to provide an annual 3.5% return (after taking a 3% inflation rate into account). Also, we won’t factor in other assets—stock and bond investments, a home and other real estate, or potential inheritances—that the couple might be able to tap for college costs. We’ll also assume Sarah doesn’t receive financial aid.
Based on these assumptions, the MoneyGuidePro software rates the probability of the Allbrights successfully achieving their college savings goal as less than 40%. However, if they take a slightly more aggressive investment approach that generates an annual inflation-adjusted return of 4.62%, the probability that the Allbrights will have enough money for Sarah’s education increases to 72%. The odds of success can be pushed even higher if the account generates better returns or if the Allbrights are able to save more.
Of course, these figures are purely hypothetical and don’t represent actual investments, and it’s impossible to know the exact return any combination of investments may provide. Moreover, the Allbrights, by starting early, have built a very healthy balance in their college savings plan. If you have further to go, you’ll need to save more or consider other sources for some of the education funding. Using one of these vehicles might help stretch your education savings dollars.
Section 529 plans. These state-sponsored savings vehicles offer several advantages. There’s no tax on investment earnings within the account, and distributions to pay college expenses also aren’t taxed. And while each account has a specified beneficiary, you can switch to another one—shifting leftover funds from one child’s plan to the account of another one, for example. Every state has a plan, but you can pick and choose from among all states’ offerings. 
Custodial accounts. Another alternative is to set up bank accounts in your children’s names and manage the assets until they reach the official age of adulthood in your state. But you don’t get the tax breaks of a 529 plan, and under the “kiddie tax,” investment income received by a child that exceeds an annual threshold ($1,900 for 2010) is generally taxed at the top tax rate of the child’s parents.
Minor’s trust. With a Section 2503(c) trust, often called a minor’s trust, taxes on trust income are paid by the trust, which avoids kiddie tax complications. Moreover, unlike a custodial account, this trust gives a child only a limited right to withdraw funds after reaching the state age of majority.
Coverdell ESAs. The Coverdell Education Savings Account (ESA) is basically an IRA that pays for higher education rather then retirement. But these tax-advantaged accounts have low contribution ceilings—with the maximum allowed in 2010 set at just $2,500—and high-income parents can’t contribute.
Setting aside even relatively small regular amounts when children are very young can go a long way toward the high cost of higher education. But whatever your situation, affording college for your children need not be an impossible dream. We can help you consider your options and establish a comprehensive savings plan.

This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.

  • Inflation: A Portfolio Risk That Never Dies
  • Understanding Economic Fundamentals
  • A Bright Outlook For Consumer Spending
  • Six Tips To Avoid Phishing Scams
  • Seven Steps To Protect Yourself After Data Breach
  • Dynasty Trusts: The Gift That Just Keeps On Giving
  • Getting A High Tax Grade For Higher Education Credits
  • How Social Earnings Taxation Has Changed
  • Why Aren't More Millennials Moving On Up And Out?
  • Taking Socially Responsible Investing To The Next Level
  • Don't Be Caught Red-Handed By The Wash Sale Rule
  • Leading Economic Indicators Hit 10-Year High
  • Avoid These 6 Mistakes In Stretch IRA Planning
  • More Flexibility Allowed In Flex Spending Accounts
  • Individual Bonds-Ugh!
  • Set Aside The Funds One Might Need For A Rainy Day
  • Protect Against Possible Terrorist Attack
  • U.S. Leading Economic Indicators Rose Again
  • Fed Chair Strikes A More Cautious Tone, But Still Expects Moderate Growth
  • Count Off 3 Tax Breaks For Higher Education
  • Don't Be Victimized By These 10 Common Scams
  • Retirement Plan Choices For The Self-Employed
  • New Law Says Tax Debtors May Lose Their Passports
  • Compare Minor's Account To 529 Plan
  • Are You Being Socially Responsible?
  • 8 Smart Moves For College Grads
  • Seeking Financial Aid: Don't Fear The FAFSA
  • New Baby? Consider An Education Savings Plan
  • 3 Ways To Deduct Mortgage Interest
  • Understanding Deflation
  • Don't Play Up Super Bowl Outcome In Stock Decisions
  • When Should Millennials Start Retirement Saving?
  • Have Your Child Kick Into A Roth With A Reward To Boot
  • Sizing Up The Energy Boost To The Economy
  • A Stock Plunge Amid Strong Economic Data
  • 14 Top Year-End Tax Moves For Individuals In 2014
  • Drill Down For Three Key Oil And Gas Tax Breaks
  • When It Pays To ID Security Sales
  • GDP Growth Data Masks Strength Of The Recovery
  • Be On The Lookout For Crimes Involving An Elder Fraud
  • S&P 500's New All Time High Wednesday Will Probably Continue Over Upcoming Months, But Other Indexes Are Struggling
  • U.S. Stock valuations are within the top 10 valuations of all time but probably won't crash. Why?
  • Seven Steps To Digging Your Way Out Of Deep Debt
  • 5 Steps To Protect The Digital Assets You Own
  • The Long-Term Fiscal Status Of The United States
  • Margin Debt At Record Levels
  • What To Do When You're Suddenly Widowed
  • A Common Error In Powers Of Attorney
  • Should You Move To A Different State?
  • Tax Cost Of Being Your Own Landlord
  • Why Do GRATs Remain In Such High Demand?
  • Don't Wait To Harvest Your Losses
  • The Best States To Move To For Tax Purposes
  • 10 Reasons For The IRS To Flag Your Return
  • Many Women Face Special Challenges As Retirement Nears
  • Nine Reasons To Consolidate Debt
  • Straight Talk About Living Trusts
  • SEPPs From An IRA: Don't Change Horses Midstream
  • New Regulations Fill In Gaps On 3.8% Surtax
  • Do You Know Life Insurance Basics?
  • Top Income-Earners Drive U.S. Economic Growth
  • Give IRA Cash To Charity: Heads You Win, Tails You Win
  • Four Wash Sale Strategies To Help Clean Up Taxes
  • College Savings: How Much Do You Need Each Month?
  • Surprising New Research: Large Caps Top Small Caps
  • Newly Widowed Face 401(k), IRA Options
  • Retirement Saving Takes Time And Must Be A Priority
  • Divide-Conquer To Convert To Roth IRA
  • What Is Probate And What Does It Protect?
  • A Research Surprise On Bond Funds
  • After New Tax Law, Do You Still Need A Bypass Trust?
  • Start Estate Planning For Your Child Now
  • Seven Tax Ideas To Use Throughout The Year
  • A Comprehensive Way To Plan For College Savings
  • Bulletproofing Your Will Before Death
  • IRS Mercy on 60-Day IRA Rollover Error
  • Feds Warn Of Life Settlement Dangers
  • Know The Tax Rules On Charitable Gift Deductions
  • IRS Ruling Boosts IDTs as Estate Planning Technique
  • A Defined Benefit Plan Lets You Sock Away Large Amounts If You Can Overcome Some Obstacles
  • Economic Shifts Bring New Pitfalls And Prizes
  • Evaluating Great Companies
  • Inflation Versus Deflation
  • Jeremy Grantham And Lou Stanasolovich Discuss Market Valuations
  • Ramifications Of A Weakening Dollar
  • Secular Versus Cyclical Bear Markets
  • Small Business And Work Opportunity Tax Act
  • Time To Plan For Estates, Wills, & Trusts

  • ©2018 Legend Financial Advisors, Inc.®. All rights reserved.